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The term ‘classical’ refers to work done by a group of economists in the 18th and 19th centuries. Much of this work was developing theories about the way markets and market economies work. Much of this work has subsequently been updated by modern economists.

Keynesian economics is a theory suggested by John Maynard Keynes in which government spending and taxation is used to stimulate the economy. This theory is also called fiscal policies or DEMAND-SIDE ECONOMICS.

The government could stimulate the economy by running a budget deficit. It could create jobs, decrease interest rates, and encourage spending. When the private sector was spending again, the government could trim its spending and pay off the debts they had accumulated during the slump.

Monetarists are a group of economists so named because of their preoccupation with money and its effects.

Federal Reserve: Minneapolis

Their view that the main cause of changes in aggregate output and the price level are fluctuations in the money supply. The FEDERAL RESERVE is responsible for monetary policy in the United States. In his view, any attempt to manage the level of demand (as in Keynesian economics) would simply be de-stabilizing and make things worse. The role of government is simply to use its monetary policy to control inflation and supply-side policies to make markets work better and reduce unemployment.

This school of thought, suggested by Milton Friedman, stressing the importance of stable monetary growth to control inflation and stimulate long-term growth is popular among conservatives. The FEDERAL RESERVE SYSTEM conducts monetary policy in the United States.

The United States government creates laws and agencies to regulate production and exchange activities, conduct research, and establish guidelines for consumer rights and safety. The government can also intervene in labor-management relations and can regulate competition in the marketplace.

United States businesses have become multinational in their quest for productive resources, markets, and profits. United States firms may move factories to other countries to reduce costs (off-shoring).

International trade provides Virginia and the United States with goods and services for which they do not possess absolute or comparative advantage.

Advances in technology allow businesses to get skilled work, such as engineering and accounting, done by people who remain in their home countries (i.e., to outsource this work). This increases the supply of workers and holds wages and costs of production down. Immigration brings workers into the country and increases the supply of labor.